PCP Myth #6: You can upgrade at any time
This one is technically true, but the catch is that it will usually cost you a large chunk of money to do so.
Dealers will usually start calling you about halfway into your PCP agreement with the “good news” that you are eligible for an early upgrade on your car. Sounds great, right? So what’s the catch?
The catch is that your car is almost guaranteed to be worth substantially less than what you still owe on it (negative equity), so you have to find a large chunk of money to clear that before then coming up with a deposit for your next PCP. The dealer will usually have some fantastic offer where they can help cover your shortfall, or let you add it onto your next agreement.
If the dealer is covering your negative equity using a deposit contribution or some other discount, that’s money that would normally be discounted off the new car, yet you’re using it to pay off the debt on your old car and then paying full price for the new car. Not such a great deal now, is it?
If the dealer is pushing you to add the negative equity onto your next finance agreement, run away as fast as your legs will carry you. It’s just asking for trouble. All you’re doing is making your next car a few thousand pounds more expensive without actually increasing its actual value, so you are simply magnifying your negative equity problem for next time.
PCP Myth #7: Small deposits are better
Dealers love telling customers that putting in a large deposit on a PCP is wasting your money, or pouring it down the drain, or burning pound notes, or crazy, or poor financial strategy. But once again, that’s simply not true.
With a PCP, you have to pay off the entire value of the car (minus the balloon amount if you don’t plan to keep it). If you put in a small deposit or no deposit at all, that makes your monthly payments higher. If you put in a larger deposit, your monthly payments will be lower. The more deposit you put in, the less money you are borrowing and the less interest you have to pay.
Everyone’s circumstances are different. For some people, a smaller upfront payment and a few extra pounds per month is a better option. Other people might have the cash available now and prefer to spend less each month. You’re getting to the same point at the end of the agreement, so it doesn’t matter which way you choose to get there.
What dealers generally don’t tell you is that they are being paid commission on every pound you borrow, so it’s in their interests for you to borrow more money. The only reason they want you to put in less cash and borrow more is so they will get a bigger commission payment from the sale. Make sure you are setting up your PCP in a way that works for you, not for the dealer.
For more information, check this out:
Why is the car buying process so unfriendly?
PCP Myth #8: You’ll get your deposit back at the end of the agreement
This one still confuses people, although not as many as most of the other myths on this list.
When we talk about your “deposit” on a car finance agreement, what we are really referring to (and what it should be called) is an “up-front payment” or “initial payment”. It’s not a security bond like you have when renting a house, it’s a payment.
It’s no different to your regular monthly payments; when you hand it over to the finance company, it’s gone and you’re never going to see it again. Wave goodbye.
For more information, check this out:
The Car Expert’s car finance glossary
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More PCP information
- What exactly is a PCP?
- How does a PCP work?
- What is the Guaranteed Future Value?
- What is the attraction of a PCP?
- What are the disadvantages of a PCP?
- Is a PCP right for me?
- What is voluntary termination?
- How do I start the VT process?
- Will VT affect my credit rating?
- Excess mileage and other charges